Endogenous Tracking: Sorting and Peer Effects

We show that, when the educational choice is costly, the motive of seeking positive peer effects can result in ability grouping. In particular, high-achieving students self-sort by choosing costly courses, which we refer to as "endogenous tracking." We demonstrate the implications of endogenous tracking using the data from French middle schools, where ability grouping officially is not allowed. Instead, students are grouped together to study all courses in the standardized curriculum based on their choices between studying Spanish or a more effort-costly German. We find that costly language choices result in groups that significantly differ in terms of academic performance. Furthermore, we exploit regional differences in the effort costs of learning German to confirm that larger costs of choosing German result in more selective endogenous tracking. Finally, we identify peer effects that, together with sorting, generate inequality in educational outcomes. Such inequality, combined with observed inequality in socioeconomic status between the formed groups, works against egalitarian educational policies. JEL Codes: H75, I21, I28, J24